Samsung Heavy offers 1st bond in 7 yrs amid slump

South Korea's Samsung Heavy Industries said on Monday it would sell $482 million in three-year domestic bonds, its first corporate bond offering since 2002, as ship orders slump and cash flow weakens. As the spreading global recession and falling trade hit the shipping industry, new ship orders have evaporated this year and concerns are growing that even top players like Samsung could suffer order delays or cancellations.
Analysts have expected Samsung and its bigger rivals, Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering, to tap bond markets to raise money as their cash flow drops and the downturn looks is set to linger.
"Samsung is preparing for a potential future crisis, securing cash," said Joey Lee, an analyst at Goodmorning Shinhan Securities. "Their balance still looks solid but it would be good if they can raise cash at using their strong credit ratings."
Samsung, the world's No. 3 shipbuilder by outstanding order book volume, said it would issue the 700 billion won ($482 million) bond on March 24 at a rate of 6.22 percent per annum.
The bond sale was to finance investment projects and repay maturing short-term debt, Samsung said in a filing to the financial regulator.
Samsung has so far financed investments with incoming cash from new orders and reserves, but "managing cash has become more important due to a rapid fall in new orders since the second half of 2008," the company said.
"A fall in new shipbuilding orders has accelerated since the fourth quarter of 2008," Samsung said as it states risks associated with the bond. "This downturn will likely to continue for a while."
New ship orders, measured in tonnes, fell 93 percent from a year earlier between October last year and January this year, with only 18 vessels ordered in January-February this year, according to Samsung.
Samsung, which has order backlogs that can keep its yards busy for more than three years, is expected to focus on offshore plants and energy vessels to weather the downturn in the global shipping industry, Lee said.
Shares in Samsung Heavy closed down 2.9 percent before the news, in the wider market that ended almost flat. ($1=1452.3 Won)